S Korean feed buyers switch from corn to feed wheat as negative spread widens

Singapore — Feed millers in South Korea have switched from corn to feed wheat, as the price spread between the two feed components widened further in the negative territory.

Earlier in the week of March 21, South Korea's Major Feed Group privately purchased a 66,000-mt of feed wheat cargo from COFCO on March 22 at $274.99/mt CFR, plus $1.50/mt second port premium, for arrival on Oct. 5.

Feed Leaders Committee followed suit on March 23 to privately purchase two 65,000 mt feed wheat cargoes from Cargill at $271.99/mt CFR, plus $1.50/mt second port premium. The first vessel was for worldwide origin, excluding Denmark, Argentina, China and India, for arrival on Oct. 15 while the second vessel was from the Black Sea for Aug. 22-Sept. 10 shipment.

The three trades proved that the price spread between feed wheat and corn for delivery into South Korea has steeply widened in the negative zone by over 300% from Feb. 18 when the spread was $13/mt to -$28/mt March 23.

Wheat prices have come under pressure in recent weeks amid improved crop conditions in major producing regions of the US, EU and Black Sea. Moreover, the wheat market is facing a price inverse ahead of the new crop marketing year in the Black Sea starting end July.

As a result, suppliers have been lowering offers to entice buying activity afraid of lower price levels ahead due to the steep inverse, but buyers have been patiently bidding their time, confident that prices will continue to trend lower.

Corn, on the other hand, continues to face upward price pressure due to persistent supply tightness. Market is expecting a delay in the Brazilian new crop harvest as a quarter of the crop was sown outside of the ideal planting window this year.

Hence, supply of August shipment corn cargoes are limited and sellers are pricing in a risk premium, which coupled with rising freight rates, is keeping CFR corn prices at elevated levels.

S&P Global Platts assessed the CFR Northeast Asian corn index at $300/mt CFR March 23, up $11.15/mt from March 11.